Mexico as No. 1

June 14, 2000

Canada is sometimes pleased that it's the No. 1 trading partner for the United States. But guess what? Mexico is catching up.

In less than 10 years, Mexico will buy more from the US than Canada, predicts Herminio Blanco, Mexico's secretary of commerce and industrial development. It already usurped Japan as the No. 2 customer of the US two years ago - even though the Japanese economy is 11 times the size of Mexico's.

Mexico, of course, has a trading advantage over Japan in its proximity to the US. (See a related story on page 3). Goods can be easily trucked across the border. Mexico also has the North American Free Trade Agreement with the US (Canada is the third partner). Japan resists any such pact that would remove subtle barriers in its market.

A combination of NAFTA, the 1994 peso crisis, and astute economic management has helped turn Mexico into one of the world's most ambitious free trade nations. It now has free-trade arrangements with 28 countries, including the European Union.

Given Mexico's long history as a highly protectionist nation, this is an astounding turnaround.

But it's ironic that such economic success comes just when the political party that has led Mexico for 71 years faces its most serious threat in a presidential election.

On July 2, Mexican voters will decide whether to endorse Francisco Labastida, the candidate of the ruling Institutional Revolutionary Party (PRI), or one of his five opponents. It will likely be the country's cleanest and fairest election ever.

A long-overdue transfer of power to a new party would probably be a healthy political development, even though the opposition parties already control many local governments and much of Congress.

Having a non-PRI president for a while would help make a better democracy, serving as a model for many other Latin America nations.

But whichever party wins the presidency, it would be smart to build on the economic successes of the outgoing Zedillo administration. Those successes are considerable, compared with the previous PRI regime.

Inflation is relatively low. Commercial banks are in better shape. Mexico has a better bankruptcy law. It also has a healthier foreign debt situation. NAFTA has added at least 1 million jobs out of the 12 million in the "formal" economy.

On a few critical measures - crime, drug traffic, corruption, and wealth disparity - Mexico still has a long way to go. These problems remain a drag on investment.

PRI can take partial credit for another long-range success story: a huge drop in the fertility rate.

In 1974, Mexican women had an average of 6.1 children. Last year, that number was 2.48. By 2005, the fertility rate is expected to drop to 2.1 - or what is called the "replacement rate," the point at which a population will eventually stabilize.

A combination of growing prosperity, fewer job-seeking youngsters, and better democracy should help reduce the flow of Mexicans crossing illegally into the US.

In all, Mexico's progress deserves praise and support as it becomes Customer No. 1 for its northern neighbor.